What is NIFTY BEES - ETF?

NIFTY BEES - is the first ETF (Exchange Traded Fund) in India, which seeks to provide investment returns that closely correspond to the total returns of securities as represented by the S&P CNX Nifty Index. It gives you the most diversified exposure at lowest possible unit size. Approximately value of Nifty bees will be 1/10th value of the prevailing Nifty price.

ETFs are one of the latest financial innovations and any new concept takes time to be known widely. Globally it took more then five to seven years before it could be of any significant size. In India, it was introduced with Rs 21 crore in size , a fraction of the mutual fund industry, it has come far with more than Rs 700 crore in size with six ETFs.

The Nifty BeES also scores over other index funds due to its low tracking error and expense ratio, apart from easier tradeability as it is listed in the NSE. One can also consider doing an SIP in Nifty BeES.

Some of the reasons to invest in Nifty Bees :

Investing in Exchange Traded Fund (ETF) is much simpler compared to investing in a stock or actively-managed mutual fund.

43 comments:

Lay investors can just play safe by starting with ETFs, but remember ETFs meet different needs of all types of investors (be it big, small, retail, institutional, etc). Hwever for small investor this low cost vehicle is a boom, and it helps them to play the market at various levels and take bold moves. In today's context no stock is 100% safe .....remember the Satyam episode or even Reliance case or any other corporate news impacting stock prices. Stock prices can go to near zero levels. Whereas an investment in index ETF cannot go to exponentially low levels....it can go as low or a little lower than its benchmark index....thats all. It cannot start trading in single digits because index cannot drop to those levels.....even if such a devastating crisis-like situation happens trading systems will be halted until normalcy is restored. So its always advisable to go for index ETFs which give instant diversification than mutual funds or stocks. ETF is also good vehicle for taking exposure to Gold....this exposure is a good hedge against equity market and inslates investor from inflation

Today the Nifty BeEs closed at about 615 and Nifty 50 ( the index ) closed at about 6086. My understanding says, Nifty BeEs is 1/10 th value of Nifty 50, thats a replica of the NSE index...Why is there been so much difference in the close today. For instance Gold ETF's are properly priced and taded, but my observence with Nifty BeEs has always been , with regard to such difference. Can any1 clear my doubt on this !????

@Rahul, The difference is because, Nifty Bees includes dividends received from nifty companies.Also the Benchmark mutual fund, now and then declares dividends/bonus units to make the price even with Nifty.

@If the index, nifty in this case, goes up- nifty bees would go up in similar value.One has to buy Nifty bees when the market (nifty) is fundamentally cheap. When this article was published, nifty was trading around 250 and now it 550.

[a] Will you please explain that what is the Market Capitalization of Nifty Bees and How many Quantities of Nifty Bees are available in Free Float Market? How much one can buy? Up to Rs.1 lac or Rs.1 Crore or Rs.1000 Crore or what is the limit either in Rs. Value or Quantities of Nifty Bees.

[b] I am not able to understand that who is the sole owner of Nifty Bees? Is it Golman Sachs or NSE or SEBI or someoneels?

Yes, you can invest in SIP of top mutual fund schemes as well as nifty bees.

Mutual funds ,over longer time frame of 5-7 years have performed well. The only shortcoming with nifty bees is that, you have to invest fixed amount every month(manual process), whereas SIP is automated process.

I have a doubt about Nifty Bees i.e what about the other charges in Nifty Bees i.e STT, Stamp Duty and Other Charges(Tax on Brokerage) and there is a charge i.e DP Charge will be charged for the Nifty Bees or not? Generally it will be charged for the Stock respective of the Brokerage firm.

Nifty bees is like any other stock and hence the charges like stt, stamp duty and other charges are applicable.Normally it works out to 2.5rs for buying and 2.5rs selling for 1 unit of nifty bees at current price of 570.DP charges are charged only once a year and it is about 100rs per year,

Dear sir, In your reply to Rakesh Prabba you are mentioned as 100 rs as dp charges for one unit of nifty bees which will be around more than 15%. If we are loosing 15 % per year how the investor can make any return?

@GopinathNifty Bees is an equity stock. The tax implications are just like what you apply for buying/selling any stock. With Nifty Bees you can take advantage of Long Term Capital Gains if you hold it for over a year.

Hello Excellent article and and the best follow up done on all questions. Hats of to the author/admin.I have a question, can i buy 1000 units at a time from the market. Do we have that many buyers and sellers. Also on the same note. if i accumulate around 10000 units over a period of time and if i wanted to sell it off. then will be easy to seell all units at the expected rate ?

Does niftybees payout dividends if the nifty companies pays dividends. for exampleif i hold 100 niftybees, and Reliance pays dividend of 5rs. Will i get this complete dividends or just 1/10 th of dividend?

Active funds like nifty bees are those which buy and hold, till the investors redeem their money. If the investors redeem, the funds sell the portfolio proportionately to return the money.Expenses are less in these kind of funds.

Whereas in passively managed fund, they buy and sell according to their investment strategies.The keep on churning their portfolios.More expenses, which are reflected in the NAVs. The expenses are as high as 2.5/3.5 %.

The universe of passive funds available to Indian investors needs to grow.